Some European corporates are searching for new sources of credit and looking to lock in protection against future currency movements, having exhausted their existing credit lines with traditional banking counterparties.
“We monitor our financial counterparty credit risk every day, and the dollar situation has stretched our credit limits,” says Urs Berger, assistant treasurer at Takeda, a Japanese multinational pharmaceutical company, based in Switzerland.
The challenge has been particularly harder for companies that had sold US dollars through foreign exchange forwards when the currency was weaker in comparison to the euro.
While the strengthening dollar is good for their USD earnings, the forwards hedges have moved significantly out of the money, affecting some corporates’ ability to enter any new hedges with dealers.
“European and UK corporates may have large mark-to-market losses on their positions because…
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